A2 expands into Canada with Agrifoods Cooperative

A2 Milk chief executive Geoff Babidge. Photo / File

A2 Milk is expanding into Canada through an exclusive licensing agreement with Agrifoods Cooperative that covers the production, distribution, sale and marketing of branded liquid milk.

"We are very pleased to form this partnership with Agrifoods through a well-structured license agreement," said chief executive Geoff Babidge in a statement.

"This arrangement gives us the ability to leverage the brand development work we have already undertaken in North America and expand into the Canadian market with a well-respected partner."

A2 more than doubled North American liquid milk sales to $28 million in the six months ended December but its operating loss there jumped to $30m, up 74 per cent compared with the same six months of 2018.

The company said the wider loss resulted for increased marketing and distribution spending – distribution in the six months more than doubled to 17,500 stores.

A2 will provide Agrifoods access to its intellectual property and marketing assets as well as its proprietary systems relating to sourcing and processing a2 milk. The company markets the product, which doesn't contain the a1 protein, as being easier to digest.

Agrifoods has 2,700 members, employs more than 400 people and markets brands including Organic Meadow, Rolling Meadow, Meadowfresh, Earth's Own and Happy Planet throughout Canada.

Chief executive Maheb Nathoo said the a1-free milk his company will source from its farmers "will be the first and only milk certified as a1-protein free" milk in Canada.

A2's North American chief executive Blake Waltrip told BusinessDesk his company couldn't follow the business model it is using in the US where it is managing the rollout itself.

"If we want to have a milk proposition in Canada, all the milk has to come from Canadian farmers and has to be manufactured in Canada," Waltrip said.

Nevertheless, A2 should be able to leverage its existing US marketing presence into Canada because there's "quite a crossover" between the two countries.

Canada is a significantly smaller market than the US with a population of about 37.6 million compared with the US at more than 327 million but Canadians do have "a high propensity" to buy specialty premium products, especially those associated with health and wellness, Waltrip said.

Earlier, Agrifoods chair, Tim Hofsta, said the partnership with A2 would help "solidify our cooperative's position as an innovative disruptor."

Hofsta said the A2 brand would give "lapsed milk drinkers the reason needed to come back to the dairy case."

The British Columbia Milk Marketing Board is enthusiastic about the development. "Bringing a proven successful global brand such as A2 Milk to the Canadian market is a big win for Canadian dairy."

A2 Milk shares are trading at $15.42, down 68 cents, or 4.2 per cent, reflecting market-wide declines amid the coronavirus crisis.

The shares are still up more than 7 per cent year-to-date compared with the benchmark S&P/50 Index's 5.4 per cent decline. The stock reached a record $18.04 at the end of July last year.